Seven Nobel Prizes: JF papers

A number of papers published in The Journal of Finance are cited by the Royal Swedish Academy of Sciences in awarding the Nobel Prize in Economics, The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

1. Harry Markowitz shared the 1990 Prize. The Royal Academy wrote of his 1952 Journal of Finance paper:

“…A first pioneering contribution in the field was made by Harry Markowitz, who developed a theory of portfolio decisions of households and firms under conditions of uncertainty. The theory shows how the multidimensional problem of investing under conditions of uncertainty in a large number of assets, each with different characteristics, may be reduced to the issue of a trade-off between only two dimensions, namely the expected return and the variance of the return of the portfolio.”

Portfolio Selection

Harry Markowitz
Volume 7, Issue 1
March 1952

2. William Sharpe shared the 1990 Prize. The Royal Academy wrote of his 1964 Journal of Finance paper:

“…The next step in the analysis is to explain how these asset prices are determined. This was achieved by development of the so-called Capital Asset Pricing Model, or CAPM. It is for this contribution that William Sharpe has been awarded. The CAPM shows that the optimum risk portfolio of a financial investor depends only on the portfolio manager’s prediction about the prospects of different assets, not on his own risk preferences. The model also shows how risks can be bought and sold, and hence how risks can be spread via capital markets.”

Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk

William F. Sharpe
Volume 19, Issue 3
September 1964

3. William Vickrey shared the 1996 Prize. The Royal Academy wrote of his 1961 Journal of Finance paper:

“…William Vickrey showed that if the highest bidder does not have to pay the price he bids – but the price stated in the next highest bid – then he has a private interest in revealing his true willingness to pay. At the same time, the price paid reflects the social opportunity cost of the item being auctioned. This contributes to social efficiency.”

Counterspeculation, Auctions, And Competitive Sealed Tenders

William Vickrey
Volume 16, Issue 1
March 1961

4. Eugene Fama shared the 2013 Prize. The Royal Academy cited his 1970, 1991 and 1992 Journal of Finance papers.

They wrote that in his 1970 paper:

“… Fama emphasized a fundamental problem that had largely been ignored by the earlier literature: in order to test whether prices correctly incorporate all relevant available information, so that deviations from expected returns are unpredictable, the researcher needs to know what these expected returns are in the first place. (…) Fama also discussed what “available” information might mean. Following a suggestion by Harry Roberts, Fama launched the trichotomy of (i) weak-form informational efficiency, where it is impossible to systematically beat the market using historical asset prices; (ii) semi-strong–form informational efficiency, where it is impossible to systematically beat the market using publicly available information; and (iii) strong-form informational efficiency, where it is impossible to systematically beat the market using any information, public or private.”

About his 1992 paper, the Royal Academy wrote that Fama:

“… convincingly established that the CAPM beta has practically no additional explanatory power once book-to-market and size have been accounted for.”

Efficient capital markets: a review of theory and empirical work

Eugene F. Fama
Volume 25, Issue 2
May 1970

Efficient capital markets: II

Eugene F. Fama
Volume 46, Issue 5
December 1991

The Cross Section of Expected Stock Returns

Eugene F. Fama and Kenneth R. French
Volume 47, Issue 2
June 1992

Eugene F. Fama’s Toast at the Nobel Dinner

5. Lars Peter Hansen shared the 2013 Prize. The Royal Academy cited his 1997 Journal of Finance paper.

The Royal Academy wrote of his 1997 Journal of Finance paper:

“… In the search for a model that better fits the data, a diagnostic tool that states the properties that the stochastic discount factor must possess would be useful. (…) Hansen and Jagannathan (1997) (…) derived formal tests of the performance of different stochastic discount factor proxies.”

Assessing Specification Errors in Stochastic Discount Factor Models
Lars Peter Hansen and Ravi Jagannathan
Volume 52, Issue 2
June 1997

6. Robert Shiller shared the 2013 Prize. The Royal Academy cited his 1981 and 1988 Journal of Finance papers.

The Royal Academy wrote of his 1981 Journal of Finance paper:

“… The findings of excess volatility and predictability are challenging for the notion that prices incorporate all available information or for standard asset-pricing theory – or for both. Based on his early findings, Shiller argued that the excess volatility he documented seemed difficult to reconcile with the basic theory and instead could be indicative of “fads” and overreaction to changes in fundamentals.”

About his 1988 Journal of Finance paper, the Royal Academy wrote:

“… Campbell and Shiller explore the determinants of the dividend-price ratio d/p. (…) The methodology developed by Campbell and Shiller allows an analyst to gauge to what extent variations in d/P can be explained by variations in expected dividends and discount rates, respectively. (…) The Campbell-Shiller decomposition has become very influential both by providing an empirical challenge for understanding what drives asset prices and by providing a methodology for addressing this challenge.”

The Use of Volatility Measures in Assessing Market Efficiency
Robert J. Shiller
Volume 36, Issue 2
May 1981

Stock Prices, Earnings, and Expected Dividends
John Y. Campbell and Robert J. Shiller 
Volume 43, Issue 3
July 1988

7. Richard Thaler won the 2017 prize. The Royal Academy cited his 1985, 1987, and 1991 Journal of Finance papers.

The Royal Academy wrote that his 1985 paper:

“… questioned the assumption, inherent in the traditional finance model, that rational traders hold ‘correct’ beliefs that are revised according to Bayes’ rule when new information arrives. (…) In line with the overreaction hypothesis, they found that the portfolio of loser stocks outperforms the portfolio of winner stocks.”

About his 1991 Journal of Finance paper, the Royal Academy wrote that the paper offers:

“… an explanation for the closed-end fund puzzle based on the existence of ‘noise traders’ with incorrect beliefs. (…) the discount on closed-end funds is a commonly used measure of investor sentiment that has been shown to be related to several other asset-pricing phenomena.”

Does the Stock Market Overreact?
Werner F. M. De Bondt and Richard H. Thaler
Volume 40, Issue 3
July 1985

Further Evidence On Investor Overreaction and Stock Market Seasonality
Werner F. M. De Bondt and Richard H. Thaler
Volume 42, Issue 3
July 1987

Investor Sentiment and the Closed‐End Fund Puzzle
Charles M.C. Lee, Andrei Shleifer and Richard H. Thaler
Volume 46, Issue 1
March 1991